Struggling Maine Health Insurance Cooperative Not Allowed to Close

Community Health Options, one of the 23 nonprofit health insurance co-ops established under the Affordable Care Act, has had its troubles. After $7 million in profits in 2014 (its first year of operation), it lost $31 million in 2015 and has budgeted to lose at least $43 million in 2016. To address the losses, it initiated $11 million in administrative cuts, including rolling back part of the executive pay increases authorized after 2014’s profitable year.

Maine’s Division of Insurance had reached an agreement with Community Health Options to place the nonprofit cooperative into receivership and help it restructure. However, the U.S. Centers for Medicare and Medicaid Services (CMS) rejected the plan because it included terminating as many as 17,000 policies—15 to 20 percent of policies currently in force—violating the ACA’s “guaranteed issue” provisions that protect people with insurance from having their coverage terminated.

Community Health Options’ problems stem, in part, from a key aspect of its success—selling more policies to people who need them. Unfortunately for the insurance cooperative, many of the newly insured needed more covered health services than expected, so premiums paid did not cover the costs of services. NPQ discussed similar issues of pricing insurance and “adverse selection” in the failure of Utah’s insurance cooperative.

Eric Cioppa, Maine’s insurance superintendent, is frustrated by the federal action but is continuing to work with CMS and Community Health Options to find a way to address losses while maintaining coverage.

Although not specifically mentioned in Maine’s case, one potential source of relief may be the class action lawsuit filed by Oregon’s cooperative, Health Republic Insurance Company.

Whether through litigation or other remedies, Cioppa has a valid point when he wrote in a letter to federal officials: “Because CMS’s decision has precluded my ability to act as proposed, CMS now must share responsibility for the risk of an outcome we all very much hope to avoid.”

In the worst-case scenario where Community Health Options’ “enhanced oversight” status and attempts to restructure fail, can CMS force an insolvent insurer to continue operating? If so, whose money would pay claims? If CMS attempts to force Maine’s state government to make good on policies and payments, expect more lawsuits and strife.—Michael Wyland

Michael L. Wyland currently serves as an editorial advisory board member and consulting editor to The Nonprofit Quarterly, with more than 250 articles published since 2012. A partner in the consulting firm of Sumption & Wyland, he has more than thirty years of experience in corporate and government public policy, management, and administration.